Student Expectations of the Financial Returns to Higher Education in the Czech Republic and England
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University of Huddersfield Repository Anchor, J.R Student Expectations of the Financial Returns to Higher Education in the Czech Republic and England Original Citation Anchor, J.R (2011) Student Expectations of the Financial Returns to Higher Education in the Czech Republic and England. In: Proceedings of the 10th International Conference : Liberec Economic Forum. Technical University of Liberec, pp. 9-16. ISBN 9788073727550 This version is available at http://eprints.hud.ac.uk/id/eprint/11848/ The University Repository is a digital collection of the research output of the University, available on Open Access. Copyright and Moral Rights for the items on this site are retained by the individual author and/or other copyright owners. 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For more information, including our policy and submission procedure, please contact the Repository Team at: [email protected]. http://eprints.hud.ac.uk/ STUDENT EXPECTATIONS OF THE FINANCIAL RETURNS TO HIGHER EDUCATION IN THE CZECH REPUBLIC AND ENGLAND John R Anchor University of Huddersfield University of Huddersfield Business School Queensgate, HD1 3DH, Huddersfield, UK [email protected] Abstract The economic development of a nation or a region depends to a considerable extent on a highly educated and skilled workforce. This includes an appropriate supply of University graduates. The motivations of students to enter higher education are potentially many and various. However financial factors are known to be of considerable importance, particularly in subjects such as economics and business administration. It would be useful therefore to have an estimation of students' expectations of the financial returns to higher education. The results which are reported on in this paper provide data concerning the expectations of first year students in three Czech faculties of economics and one English Business School. First year students were surveyed because they had recently entered higher education. The findings show that students in both countries expect higher education to be a profitable investment. Expected rates of return are found to vary by gender as well as by country and place of study. In the case of England, it is concluded that the current level of tuition fees does not act as an incentive for students to enter higher education. JEL Classification: I23, J24 STUDENT EXPECTATIONS OF THE FINANCIAL RETURNS TO HIGHER EDUCATION IN THE CZECH REPUBLIC AND ENGLAND 1 Introduction During the last fifteen years, there has been a growth of interest in the returns to higher education by policy makers. This has been due to increasing difficulty in funding higher education as student numbers have expanded. The fact that there are often substantial private returns to higher education has been used as a reason to shift the burden of funding higher education away from the tax payer and to the student – or sometimes to the graduate [3]. In countries where there is a consensus for a welfare state financed by high levels of general taxation (e.g. in Scandinavia), university studies have tended to remain free at the point of entry. This has also been the case in countries in which the age participation rate has remained below the OECD average (e.g. in the former COMECON countries of Central/Eastern Europe). In such countries, the costs associated with university funding have remained “affordable” for the taxpayer. In the Czech Republic for instance, public universities have remained free at the point of entry with student numbers capped and excess demand has been mopped up by encouraging the growth of a vigorous private sector. By contrast in the UK the private sector remains very small and the "marketisation“ of higher education has taken place in the public universities via the introduction of tuition fees, which cover part of the costs of tuition. This study reports on data on students’ expectations concerning financial returns to their higher education studies in three Czech faculties of economics and one English business school. The study is unusual in focusing on the question of expectations as most studies in this area have attempted to measure actual returns. Only a few studies have examined the comparability of earnings expectations to reality within the educational context. 1. Measuring returns to higher education In this study, when estimating the private rate of return, the costs will consist of foregone earnings and tuition fees but will not include living expenses. Living expenses may be covered by parents if they can afford them or by government in terms of maintenance grants for those from disadvantaged backgrounds and will be incurred anyway if a decision is made not to enter higher education. The following short cut formula can be used for calculating rates of return to education. r = Ej-Ei S.E i where • E is average earnings of an individual who has a j level and i level of education respectively • S is years of schooling • r is the rate of return to education Since the basic short-cut method formula above assumes foregone earnings as a cost of education it is designed to measure rates of return to higher education in countries where the higher education is 1 A further version of this article can be found in [1]. provided to students without charge, such as in the case of public universities in the Czech Republic. In England however tuition fees have been in place since 1998. Therefore some adjustments must be made in order to compute the rate of return in England as accurately as possible. Tuition fees for full time undergraduate students were first introduced in England and Wales in 1998 (the so called ‘old’ system) and were set at £1,000 per student per annum for all Bachelor degree courses and were subject to an inflationary adjustment (by 2005/06 the fee had risen to £1,175). The tuition fee was contingent on family income, with the possibility of a full or partial waiver for students from lower socio-economic backgrounds. Since the fees had to be paid upfront they are added to the formula in the denominator as they were a cost to students as much as their foregone earnings during their university studies. Therefore the formula used to calculate the rates of return to higher education in England between 1998/1999 and 2005/2006 is as follows: r = Eu-Es S.(E s + C u) where • Eu are earnings of an individual with a university education • Es are earnings of an individual with a secondary education • S are years of higher education • r is the private rate of return to education • Cu are the costs of university education In January 2005 the UK parliament voted to permit universities in England and Northern Ireland to charge a fee of up to £3,000 2 per annum for all Bachelor programmes (the so called ‘new’ system). Unlike the ‘old’ tuition fee system, the ‘new’ fee regime, which came into force in England and Northern Ireland in September 2006, does not require the payment of an upfront fee – rather it asks students to take out a loan to cover the cost of the fee. The loan is then repayable after graduation and instalments are collected alongside income tax and national insurance and are automatically deducted from wages. In other words this is similar to a graduate tax, such as that which was introduced in Australia in 1989 [2]. Given that the vast majority of students choose not to pay the tuition fees upfront and that the loan debt will be collected from graduates in instalments, at 9% of the threshold above earnings of £15,000 in the UK, for up to 25 years, the tuition fees should not count as costs. Rather they should be seen as a reduction of the benefits from an investment in higher education. Therefore the formula which will be used to calculate rates of return in England after 2006/2007 inclusive, is as follows: r = Eu-[0.09(E u-15,000)]-Es S.E s 2 The fees increase yearly by no more than the rate of inflation and were set at a maximum of £3,290 per annum in 2010/2011. Almost all universities have chosen to charge the maximum fee for all Bachelor study programmes. where • Eu are earnings of an individual with a university education • Es are earnings of an individual with a secondary education • S are years of higher education • r is the private rate of return to education • 15,000 is the threshold of £15,000 • 0.09 is the instalment of 9% 2. Survey of Expected Earnings at Czech and English Universities 2.1 Background The institutions surveyed in this study, in the Czech Republic and England, are equivalent in status and form, although they are not identical in terms of curriculum. Czech students have a greater amount of economics, accounting, mathematics and information systems in their curriculum than their British counterparts while the latter tend to study a larger amount of the newer and “softer” management subjects. In the Czech Republic, faculties of economics correspond to UK business schools. Despite the Bologna process, which introduced the system of three years’ study towards a Bachelor’s degree and two years’ study towards a Master’s degree in the Czech Republic, most Czech students “graduate” with a Master award after five years’ study.